FDIC becomes landlord to thousands

Thousands of homeowners with distressed mortgage
loans linked to failed lender IndyMac may soon be able to avoid
foreclosure under a program announced on Wednesday by U.S. banking
regulators.

The Federal Deposit Insurance Corp, which seized
Pasadena, California-based IndyMac on July 11 in the third-largest bank
failure in U.S. history, said 4,000 mortgage modification proposals
were going out this week and it hoped to send out 25,000 modification
notices over the next few weeks.

"Our goal is to get the
greatest recovery possible on loans in default or in danger of default,
while helping troubled borrowers remain in their homes," FDIC Chairman
Sheila Bair said in a statement.

IndyMac, the ninth-largest
U.S. mortgage lender in 2007, according to the Inside Mortgage Finance
newsletter, has about 740,000 loans that it either owns directly or it
services for others in a $184 billion mortgage portfolio. Bair has
scolded banks for months to speed up loan modifications. Now the FDIC
has a chance to practice what it has been preaching.

Oh, this is
nice. Now the FDIC is getting into the mortgage business. This is a
serious departure from their past activities, skill sets, and possibly
charter. To date, we have the Federal Reserve accepting bad mortgages
in exchange for cash and Treasuries; the FHLB sporting a $1.5 trillion
mortgage portfolio, where it was barely half that a few years ago; and
Fannie and Freddie, with absolutely frightening growth in their own
guaranteed and retained mortgage portfolios.

In short,
every possible government program is already neck-deep in this mess and
steadily getting in deeper. The galling thing about this FDIC act is
that they are re-working some of these mortgage terms in very extreme
ways. This is good if you happen to hold one of these mortgages and you
get your payment cut in half. It is painful if you happen to have been
less reckless or happened to bank with someone else besides the most
reckless bank in CA, because you don’t get any such break. Where,
again, does the constitution allow the government to bestow such
disproportionate good luck upon a select few?